Legal Guide

What are the Types of Government Business Loan Schemes Provided to Entrepreneurs?

by Mansi Gehrana · 3 min read

Government Business Loans

Introduction

  • Post-independence, the government had to launch public sector firms in order to advance the nation. Additionally, India developed a Mixed Economy model in which both the public and private sectors contributed to economic growth. 
  • The government’s involvement in the commercial and economic spheres of the nation must be supported by some sort of organizational structure. Therefore, the government of India has launched some government business loan schemes for the purpose of the economic development of the country. 

Which industry is mainly focused on providing government business loans?

Government business loan programs were created primarily to provide financing to people, business owners, and MSMEs operating only in the retail, manufacturing, and service industries. As determined by the needs and nature of the firm, there are a number of government business loan programs offered by the Indian government. The types, characteristics, and eligibility requirements of business/MSME loans offered by banks and NBFCs, as well as government business loan programs started by the Indian government, are also covered.

What are the schemes under the program of Government Business Loans?

There are five top government business  loans schemes prevalent in India (which are discussed hereinafter)

1.MSME Business Loan Scheme– The MSME Business Loan Scheme was established by the Indian government as a government business loan scheme to focus on the working capital requirements of MSME firms. Any new or existing business may apply for loans under the MSME scheme for financial support of up to Rs. 1 crore. While a loan application is accepted or rejected within the first 59 minutes of submission, the loan application process itself takes 8–12 days to complete.

The major benefit of this government business loan scheme is that you can get a loan at an ROI of 8%, which makes loan repayment easier. When requesting loans under the MSME Loan Scheme, women business owners are given a 3% advantage. Women business entrepreneurs also find it quite simple to get loans approved. The borrower’s business must be at least a year established, and existing businesses must generate at least Rs 12 lakh in yearly revenue.

2. Credit Guarantee Funds Scheme– CGTMSE has always provided MSMEs with collateral-free loans (Credit Guarantee Fund Trust for Micro and Small Enterprises). The CGTMSE program developed under the government business loan scheme is open to any scheduled commercial or regional rural bank that meets the requirements of a leading authority. The agency offers loans to MSMEs depending on their credit standing through the lending companies that have registered with the agency. The CGTMSE scheme provides working capital loans up to Rs. 10 lakhs without the requirement of any security. However, the CGTMSE plan would only cover principal security or mortgage of land and structures for all credit facilities for amounts greater than ten lakhs (and up to 1 Crore).

3. MUDRA Scheme– The Micro Units Development and Refinance Agency (MUDRA) funding program offers low-cost credit to small businesses and start-ups as a kind of financial assistance. Micro or small businesses involved in manufacturing, commerce, or delivering services are the main recipients of MUDRA loans.

This program was created by the government under the government business loan scheme as a component of the Pradhan Mantri Mudra Yojana (PMMY) to support small and micro businesses that are not farms or corporations. Banks in the public and commercial sectors, non-bank financial companies, and other financial entities all offer mudra loans. Interested parties should get in touch with one of the lending organizations mentioned above or submit an online application at MUDRA’s official website. MUDRA loans are mostly used by MSMEs, small enterprises, and business owners.

  1. National Small Industries Corporation Subsidy Scheme– The government provides financial help under this government business loan scheme to small firms through the National Small Industries Corporation Subsidy (NSICS), concentrating on two financial benefits: marketing support and raw material support. It has other benefits:
  • Free-of-charge Tender: As part of the marketing assistance effort, Small-Scale Industries (SSIs) will have free access to the bids.
  • No security deposit is necessary: When applying for funding, Small Scale Industries (SSIs) are exempt from submitting a security deposit.
  • Building and Land Financing: For SSI enterprises with projects costing less than Rs. 25 lakh, the program provides financial assistance for the land and building department.

2. SIDBI Loan– In addition to direct loan programs for MSMEs, under this type of government business loan program SIDBI also offers indirect credit programs to NBFCs (Non-Banking Financial Companies) and SFBs to help satisfy the funding needs of enterprises in the MSME sector (Small Finance Banks). The loan amount may range from 10 Lakhs to 25 Crores, and the term may be up to 10 years. Without putting up any security, you can get loans up to Rs. 1 crore.

MSMEs are able to apply for loans through the bank’s several lending programs, including SIDBI-Loan for Purchase of Equipment for Enterprise Development (SPEED), SIDBI Make in India Soft Loan Fund for MSME (SMILE), Smile Equipment Finance (SEF), etc. The loan tenure, loan amount, and eligibility restrictions vary depending on the loan plan. 

What are the documents required for availing of the benefits of these Government Business Loans?

The documentation needed for various government programs varies depending on the program. However, we have provided a few typical documents to give you a sense of what may be required when applying for the schemes:

  • Two passport-size photos along with a completed application form 
  • KYC records: Proof of the applicant’s identity, age, and 
  • Address: Voter ID, a passport, an Aadhar card, a driver’s license, a PAN card, and utility bills (Water & Electricity Bills)
  • Bank records from the previous six months
  • Certificate of Business Establishment, Business Address, and Vintage Proofs
  • Proof of being in the SC/ST/OBC category, if applicable, using a business PAN card
  • Any other paperwork necessary under the embargo

Conclusion 

The Government of India (GOI) has started a number of programs and projects under the government business loans scheme to boost the economy of the country. The government needs to guarantee and support some of the elements of various businesses’ futuristic methods financially. Any form of business, whether it is a big or small one, needs finance to make money. Take the help of a business lawyer to avail the benefits of these government business loan schemes. Even the government supports start-ups in India under various schemes.  

The MSME sector contributes significantly to the Indian economy. It contributes 29% of the country’s total GDP. The government has created a number of company credit programs recently to solve this issue. These programs provide MSMEs with significant financial assistance, allowing them to concentrate on enhancing operational efficiency and creating expansion strategies.

With the help of microloans a small businessman may think of starting his own small company. Initially, it was not possible because banks were reluctant to provide it. But with the help of micro loans it has become possible. To know more about the process of availing the benefits of these schemes take the advice of a lawyer.

Mansi Gehrana

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Mansi Gehrana

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